~ 0{ ~ ~ l,.~,L~ The Death of the "Living Wa e" -~ LV~ Statement by Mark Paterson, Chief Executive Commenting on the issues raised in the May, 1997 ACC! Review While the obvious focus following the "Living Wage" decision was the $10 increase granted, the underlying message of the decision was that the concept by which the ACTU had pursued its claim was comprehensively rejected . The Industrial Relations Commission spelt it out. Wage case decisions are not and should not be based on "needs". The decision means that all of the material introduced by the ACTU on poverty lines and the cost of living were irrelevant . Whatever it is that people may "need", wages can only be based on what the economy can afford. The Commission accepted that it cannot make poor people rich by simply raising the wages of the lowest paid. The Commission, by its decision, recognised that only steady jobs and higher productivity can improve living standards. This was the message of the decision, and it. is this conclusion which has been underscored in red. Arguments about what people "need" will cut no ice with the Commission. The only arguments which will succeed are arguments based on the ability of the economy to afford an increase without costing jobs and slowing the rate of growth. That is as it should be. The ACTU's 8.75% increase on all award rates was so clearly over the top there never was the slightest chance the claim would succeed. But that still left a lot of scope for lesser increases which could have done irreparable harm to the medium term prospects of generating a sustainable recovery. The Commission granted $10 a week on award rates which will do far less damage than the ACTU claim would have. The Commission also raised the federal minimum wage to $359.40 which is unfortunately flawed in both concept and amount. It is flawed in concept because it is related to an actual award rate rather than being an independent figure which can have a life of its own. It is . also set at too high a level since a sizeable proportion of employees, especially in state awards, are paid amounts a good deal less than the new minimum. But what is of crucial importance in the decision is that the basis of the ACTU claim has been rejected. g:\stevek\9705rvsp.rv 1 MR 97/35 LEADING AUSTRALIAN BUSINESS

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Although there have been more than eighty years of Commission discussion of "needs" material, no satisfactory methodology for taking that material into account has ever been developed.

Attempts to lift award rates to address "needs" in the way sought by the ACTU would have had seriously adverse effects on employment levels and investment. The clear message in the ACCI submission was that it is impossible to raise the wages of the lowest paid by such large amounts without putting their jobs, and those of others, at serious risk.

It is this conclusion which has been accepted by the Commission. You cannot raise the wages of the lowest paid by large amounts without jeopardising their continued employment.

No matter how the ACTU sought to put its argument, there was no evading this central conclusion .

For the Commission to have accepted the ACTU premise would have shifted fundamentally the basis for wage fixation in this country.

The decision also highlighted an additional and crucial issue. Calculating the impact of an increase requires the Commission to understand the distribution of wages and the differential impact on different employees in different sectors.

Calculating the increase in terms of its impact on aggregate wages measured in some particular way, such as with ordinary time earnings, ignores the tremendous difference in circumstance between employees across the labour market.

The Commission, in its decision, recognised the different circumstances of different employees. It therefore showed more genuine concern for the lower paid in its decision than the ACTU did in pursuing its claim.